1. Field of the Invention
The present invention relates to the combined fields of deposit funding to financial institutions and optional fundraising for charitable organizations. More particularly it concerns a unique and novel process of using computerized systems and processes to appropriately structure, control and manage the distribution of large deposits from investors to multiple financial institutions so that all of the investors' deposits are guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”) with respect to bank deposits and the National Credit Union Administration (the “NCUA”) with respect to deposits in Federal Credit Unions. The result is the creation of a new and novel financial instrument issued by special purpose business entities to investors, and with the optional feature of enabling investors and financial institutions to designate a portion of interest earned on the deposits to be donated to one or more charitable organizations (the “Program”).
2. Description of the Prior Art
Complex business methods have received patents for structuring expanded FDIC deposit coverage through sweep programs (Oncken U.S. Pat. No. 4,985,833), securitization of certificates of deposits (Colvin U.S. Pat. No. 7,206,761), an interbank auction method (Jacobsen U.S. Pat. No. 7,376,606) and reciprocal deposits (Bent U.S. Pat. No. 7,536,350). All of these programs are effective in achieving expanded FDIC insurance through various forms of a central transaction control process which results in a lack of flexibility, limited degree of control by banks over the size, timing and pricing of transactions and treatment of the deposits as “brokered” deposits which are not favored by the FDIC and cannot be accepted by any bank that is not “well capitalized” as defined by the FDIC.
Affinity programs are a common marketing tool used by many businesses including financial institutions like banks and credit unions so there is a value to linking a financial product with affinity groups such as charitable organizations in order to increase customerged with implementing the FDIC guarantee on deposits in all Federal and State licensed banking institutions in the United States. The NCUA is the government agency with the responsibility to charter and supervise federal credit unions and to manage that National Credit Union Share Insurance Fund (NCUSIF) which insures the accounts in all federal credit unions and the majority of state-chartered credit unions, all with the full faith and credit of the US government. All references herein to “banks”, “issuers” and “financial institutions” are intended to include both banks and credit unions.
The regulations governing the insurance of deposits in financial institutions are structured to establish insurance coverage based on defined categories of ownership rights. As a result, all funds that are held in any one ownership category (even though held in different accounts), are “aggregated” (i.e., the total amount held in all of the accounts in an ownership category is subject to the insurance limit), while funds held in different ownership categories are insured separately, so the maximum amount of insurance is applied to each ownership category, not each account.
As a result of the limitations on FDIC/NUAC insurance, anyone with funds in an amount that substantially exceeds the Insured Limit Amount have generally not considered using deposits in banks or credit unions (“issuers”) as an investment vehicle until methods were developed to obtain expanded coverage by distributing the funds to many financial institutions, through a “network” of financial institutions managed by an agent in a manner that allows for a “pass through” of the insurance to the investor.
Although different methods are used by different services, the “network” process of achieving expanded insurance generally involves a centralized system for controlling transactions and maintaining data on the receipt and allocation of ownership of funding from multiple investors in deposits with multiple issuers in such a manner that there is either a virtual or actual distribution of funds to deposit accounts at the multitude of issuers, with not more than the Insured Limit Amount of funds in any one financial institution being allocated to (owned by) any one depositor, so all of the depositor's funds are treated as insured. Through this “network” process, depositors are offered the convenience of placing funds in one account in the “network” with the administrator directing funds to a sufficient number of financial institutions to achieve full insurance on all of the depositor's funds, limiting the amount at any one institution to no more than the Insured Limit Amount for each depositor, while blocking placement of funds in any bank that a depositor may also have placed other deposits, thus maintaining full insurance on all of the depositor's funds in the “network.” For depositors with large deposits the existing network services are very beneficial. For issuers, the network services provide a product that they could not create on their own, but they are then restricted to working within limitations that are inherent in the structure of the particular network service that they use—limits as to the size of deposits, rates offered, timing of transactions and treatment as “brokered” deposits. As an example, one of the largest network services only offers transactions once a week.
The new and novel structure of the present invention involves use of any of several corporate and unincorporated association (business trust) forms of organization, but most practically non-profit corporations and business trusts1 as special purpose entities (“SPE's”) to receive and hold funds loaned by an investor to the SPE which then places the funds in insured deposits (deposit accounts like money market, savings and NOW accounts and/or certificates of deposits (“CDs”) as) directed by the investor. In exchange for the loan, the SPE issues to the investor an insured deposits note instrument as evidence of the obligation to repay the funds to the investor either on demand (for funds placed in deposit accounts like money market or savings accounts) or at maturity (for funds placed in CDs). The debtor/creditor structure of the relationship between the investor and the SPE is the meaningful factor insofar as that structure establishes that the SPE is treated as the insured entity, not the investor. 1 These structures involve lower costs of formation and continuation of existence as well as fewer tax issues.
By using this structure, both the investors and the issuers obtain meaningful benefits. The investors' benefits are:
(a) Obtaining the same level of liquidity and security as any FDIC-insured interest bearing demand account (i.e., money market, savings, negotiable order of withdrawal (NOW) accounts, etc.) payable on demand;
(b) Receiving all of the protection associated with issuer deposit products—government regulation and audits protecting funds in the issuer; and
(c) Avoiding risk of losing government insurance due to inadvertent placement of other funds of the investor in the same issuer—i.e., there is no aggregation of these deposits with other balances that the investor has at any participating issuer.
The issuers' benefits are:
(a) Obtaining far greater flexibility in executing transactions on any day, at any rate, for any term, without regard for the limiting conditions normally set by “network” services, and
(b) Potentially achieving treatment of the deposits as “core” deposits rather than “brokered” deposits.
With respect to the use of a debt instrument issued to investors, prior art disclosed in the Colvin Patent2 employs the use of a complex “securitization” process which involves issuance of debt or equity certificates by limited liability companies with many certificates being acquired in a unit investment trust or other formal securitization structure in which shares would then be offered to investors through a sophisticated SEC Rule 144 offering process that is complex, expensive and significantly limited insofar as the product is only permitted to be sold to “qualified institutional buyers.”3 This condition was set out in FDIC Advisory Opinion 04-034 issued to Colvin in connection with the FDIC's evaluation of that program, although no mention of this condition is included in the patent specifications or the materials disclosed in the application for the Colvin Patent relating to regulatory conditions that had to be met.5 In addition, the structure specified in the Colvin Patent is limited by being an offering of only CDs, all of which must be issued on the same terms at the same time, in one transaction and issued simultaneously by a minimum of 100 banks—conditions that have proven to be difficult to achieve insofar as only 2 small offerings have ever been closed over the last six years. 2 U.S. Pat. No. 7,206,761 issued to Robert Colvin Apr. 17, 2007.3 The term “qualified institutional buyer” or “QIB” is defined by the SEC in Rule 144A under the Securities Act of 1933, as an investing entity that owns and invests at least $100 million of securities on a discretionary basis, and has a net worth of at least $25 million. In addition to size, QIBs must be either an insurance company, investment company, employee benefit plan, trust fund, Business Development Company, 501(c)(3) not-for-profit organization, corporation, partnership, business trust or investment adviser.4 FDIC Advisory Opinion 04-03 dated Jul. 26, 2004.5 The documentation for the Colvin Patent only shows disclosure of the FDIC Advisory Opinion issued to Colvin on Dec. 19, 2002, not a later, more restrictive FDIC Advisory Opinion issued to Colvin on Jul. 26, 2004.
Unlike all of the prior art, the unique and novel method of the present invention is simple, easy to structure, costs little to implement and links easily with the inventor's existing Deposit Network® which has over 100 banks participating in the Network, so all of the necessary conditions for expanded insurance are immediately available. By using the automated method and system specified in the present invention, either the network administrator or an issuer seeking to provide expanded insurance for a customer can quickly structure and complete a transaction with expanded insurance for a single investor, at any time and on the particular terms that are agreed to with that investor.